The numbers

Wholesale costs rose in January at the fastest pace in five months, possibly another sign that inflation won’t slow toward the Federal Reserve’s 2% target as fast as hoped.

The producer-price index rose 0.3% last month, a considerably stronger increase than the 0.1% forecast from economists polled by the Wall Street Journal.

Core wholesale prices, which exclude food, energy and trade margins, rose by an even sharper 0.6% in January. That was the biggest increase in a year.

The rise in wholesale inflation over the past 12 months ticked down to 0.9% from 1%. The 12-month rate of core wholesale inflation was unchanged at 2.6%.

Inflation tends to bubble up at the wholesale level before spilling over to consumers.

More discouraging news

The PPI report follows a disappointing increase in the consumer-price index in January. The rise in prices at the start of 2024 suggests inflation is not going to glide quickly or easily toward the Fed’s goal. The rate of U.S. inflation is just over 3%.

Both the CPI and PPI reports also feed into the Fed’s preferred inflation tracker, the personal consumption expenditures index. Economists now expect the January PCE report to show an elevated inflation reading when it’s released in two weeks.

That will keep the worries about sticky inflation alive.

Big picture

Inflation is likely to wane further in 2024, but the CPI and PPI price gauges suggest the road to the central bank’s goal is likely to be “bumpy,” as Raphael Bostic, the president of the Atlanta Federal Reserve Bank, said Thursday.

For now, Wall Street isn’t expecting the Fed to make its first cut to interest rates until the late spring or summer. Fed officials in the past week have warned investors not to expect reductions in interest rates anytime soon.

Service inflation is high

The cost of services — the main driver of U.S. inflation — climbed 0.6% in January. Wholesales prices for medical care, financial advice, legal services and travel arrangements all rose.

Many companies raise prices at the beginning of each year. The PPI is supposed to adjust for annual increases, but its estimates aren’t always accurate.

In any case, service inflation has slowed considerably in the past year, with wholesale service prices rising by 2.2% in that span.

Goods prices are falling

The cost of wholesale goods, meanwhile, fell for the fourth month in a row and is down 1.7% in the past 12 months. The decline was led by gasoline.

The outlook for inflation further down the pipeline appeared to be more benign.

The wholesale cost of partly finished goods fell slightly last month and is 3.8% lower compared with a year ago.

The cost of raw materials is down an even sharper 15% compared with a year earlier.

The PPI report captures what companies pay for supplies such as fuel, packaging and so forth. These costs are often passed on to customers at the retail level and give an idea of whether inflation is rising or falling.